Implications of being unable to form a board

Started by PaulM30 • 2 replies • 557 views

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PaulM30 (B)
Posts: 41

Posted:

I'm the HOA President of a small building, of around 15 units. I mentioned this in another thread, but basically our building consists of only a few full time residents, with the rest being part time, or units which are rented out. I'm the President basically by default, because I want to protect my investment and nobody else was willing to do it. The other 2 board members are part time residents, but do a great job of staying on top of things with me.

A couple of our full time residents would be totally unsuitable for board membership, and several of our unit owners bought them just to rent out (I've never even met a couple of them), and basically ignore any HOA communication or get involved in the building in any way (aside when a tenant complains to them about something), and the rest of the owners have made it clear they have no interest in serving on the board. We don't have restrictions on renting out units (i.e. it's not capped at a % of units or anything), so I'm concerned that this situation could get worse. We brought up the idea of putting a cap in place on the number of units that can be rented out, but it never went anywhere as some owners were concerned it would impact the value of their property, and others (including me) would like the ability to rent out if they were in a situation where they were unable to sell.

My question is, with such a small pool of people willing to be on the board, what happens if an HOA just can't form a full board? If one of my fellow board members decides to sell up, and nobody else is willing to do it, what happens? Can you have a 1 person HOA board? The building is in pretty good shape, everyone pays dues on time, but from a corporate governance perspective, I'm really concerned that we're moving towards a situation where we just don't have enough people willing to be on the board.

CathyA3 (Ohio)
Posts: 6,299

Posted:

I'm assuming from your comments that your governing docs require a three member board. So you need at least two directors to form the necessary quorum in order to transact business. Would an owner file a lawsuit if only one person were acting as the sole board member? Maybe, maybe not. What should happen, legally, is that your association would go into the receivership. This means that the court would appoint someone to replace the non-existent board and take care of necessary business.

The thing about receivership is this: it's expensive. Receivers are well paid, sometimes more per hour than an attorney. Split 15 ways, that's an eye-opening amount of money. In addition, the receiver reports to the court, not to the homeowners, and runs the association as he/she sees fit. This can include setting assessments at whatever level the receiver deems necessary. Not surprisingly, homeowners quickly see reason when they get the bill for the first month of receivership and volunteer board members appear.

(You didn't ask about this, but with such a small association and no rental restrictions, you may find that potential buyers will no longer be able to obtain mortgages because the percentage of owner-occupied units is too low. This means buyers must pay cash, and this can make your association the target of investors. When the investors own enough units, they can vote to dissolve the association and convert to rental property. Remaining owners are given the choice of selling their units - probably at an unattractively low price - or renting. I can hear you thinking that this couldn't possibly be legal. During the last housing downturn many condo owners found out to their dismay that it is.

So having no rental cap does NOT protect property values. And as you've discovered, landlords tend to not be interested in serving on the board.)

In your place, I'd educate myself about receivership, and then educate my fellow owners about what is coming if we can't form a working board.

SueW6 (Michigan)
Posts: 814

Posted:

As the only remaining board member, you have the right to appoint people to fill those vacancies.

Do not try to run this corporation by yourself! The liability would be tremendous.

Check your bylaws to see the qualifications for boards. You may have to go outside the membership to run this snall HOA, include turning everything over to a management company.

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